UN House, Ulaanbaatar - Nearly 100 representatives from Government, international development partners, civil society, academia and the media participated in a panel discussion on “Utilising mining revenue for Mongolia’s development” organized on January 28 by the United Nations Development Programme (UNDP) and the Government of Mongolia with support of the UK embassy in Mongolia. This was the third event of UNDP’s Development Dialogue series organized in partnership with the Ministry of Finance.

Mineral reserves are critical for Mongolia’s development. The mining sector accounts for 89% of total exports, generates almost one-third of government revenues, and accounts for roughly 22% of the country's GDP. Mining revenue offers a unique opportunity for resource-rich countries to transform their development prospects. However, not all countries benefit from such an opportunity. Which way will Mongolia go? In managing its mining revenues, how can Mongolia balance between the current development needs and the need to accumulate capital for future generations? Many large mining projects are likely to come on-stream in 2013 which makes these questions all the more pertinent.

Panelists included Mr. Ts. Davaasuren, Member of Parliament and the Chairman of the Standing Committee on Budget Policy; Mr. Gantsogt, the State Secretary of the Ministry of Finance; Mr. Ch. Khashchuluun, ex-Chairman of the National Development and Innovation Committee; Ms. Coralie Gevers, Country Manager of World Bank in Mongolia; and Mr. D. Jargalsaikhan, economist and media representative. The discussion was moderated by Dr. Saurabh Sinha, UNDP’s Senior Economist.

Opening the discussion, Sezin Sinanoglu, UNDP Resident Representative said that “The sheer size of Mongolia’s mineral resources and potential revenue flows are staggering which places a huge responsibility on the government as it faces tough policy choices on how to use this wealth wisely for the benefit of all. When making those choices, the key words will be equity, sustainability and accountability, all of which underscore human development.” She further emphasised that while resource flows from mining are finite, ways have to be found to ensure that the ‘benefit flows’ continue for longer and are enjoyed also by future generations of Mongolians.

In his opening remarks, Kh.Gantsogt, State Secretary of the Ministry of Finance emphasized Mongolia stands for maximizing the benefits of mining and distribute the benefits on the principle of equity between the generations. The Government plans to use the mining revenue for the Human Development Fund and the Stabilisation Fund. “For the last three years, the mining sector has contributed 2.9 trillion tugriks into the state budget, making up one-fourth of the budget revenue. Of this, one-third has been distributed to the Mongolian population as mining benefits and the remaining has been used to fund the budget expenditure and 335 billion tugriks put in the Stabilization Fund. So that the mining revenue benefits not only the present generation but also future generations, Mongolia is learning from the experiences of countries such as Norway, Chile and Arabian countries, to expand its economy, promote the wellbeing of its people, and most importantly, reserve the wealth for future generations”. A Law on Sovereign Wealth Fund is presently being drafted to keep a part of the mining revenue for future use. There are also plans to provide tax support to promote SMEs in the non-mining sector.

The discussion and the question and answer session that followed covered a number of areas. Most panelists talked about trade-offs between investments, especially between meeting present needs and keeping aside money for future generations; and between investing in infrastructure and building human resource capacity through investments in social sectors. The panelists talked about the need to develop a medium-term development strategy to manage the mining revenue better, especially since the new Budget Law now will lead to greater availability of resources at local levels through the Local Development Fund. It is hoped that fiscal decentralization will enable expenditure decisions to arise from broad based consultation and common understanding at different levels.

Mr. Davaasuren MP highlighted the central importance of investing in education to improve skills and capacity. Proper and effective utilisation of mineral revenue requires a suitable institutional framework with transparency and effective governance. Mr. Jargalsaikhan was of the view that institutional arrangements should not depend upon political personalities. Panelists agreed that greater accountability and transparency in the use of mining revenue will greatly enhance its impact on welfare.

Overall, Mongolian economy is heavily dependent upon mineral exports and the revenue is affected by the fluctuations in global prices. In 2008-09 global copper prices declined sharply and put Mongolia’s growth into negative territory. So a mineral-rich economy always faces a high risk of fluctuation in global commodity prices. With the introduction of the Fiscal Stability Law, Mongolia is better prepared this time to deal with such a crisis. In the open discussion that followed, the Vice Minister for Industry and Agriculture made a strong pitch for using mining revenue to promote industrial development which would also help in diversification of the economy.

UNDP intends to organise dialogues on a regular basis each year. Two more dialogues in this series are planned for until March 2013 on Mongolia’s “National Strategy on Green Growth” and “Including Youth in Mongolia’s Development”. Further details will be available on the website www.undp.mn/dialogues.

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The Development Dialogues aim to support evidence-based policy formulation in Mongolia by providing a platform for discussion, exchange of analyses, and sharing international good practices on key development issues.

The Dialogues will bring together, and initiate consultations among, government, development partners, civil society, the private sector, and academia to develop a common understanding of the key issues and challenges so as to eventually inform development policy in Mongolia.

The Dialogue series, which could become a regular annual feature, is expected to also

encourage a critical review of development priorities in light of global developments,

expose policymakers to alternative points of view,

contribute to strengthening national analytical capacity, and as a result

contribute to building a broad national consensus on the pace and direction of Mongolia’s future development.